Price rigidity
Definition. Price rigidity refers to the tendency of prices to remain stable for extended periods, particularly in oligopolistic markets, even when costs or demand change. It arises because firms are mutually interdependent and fear that price changes will trigger unfavourable reactions from rivals.
The kinked demand curve model explains price rigidity, since a firm believes rivals will match price cuts but not price rises, making demand elastic above the current price and inelastic below it.
This term belongs to Oligopoly in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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